OPEC and other major oil producers will hold a video conference Thursday to discuss oil production cuts.

In a sign of the times, the Organization of the Petroleum Exporting Countries and allied oil producers will hold a virtual meeting Thursday to make a decision on global crude production that could make or break the oil market.

“The virtual nature of the meeting is unconventional, but is unlikely to be a hindrance,” said Manish Raj, chief financial officer at Velandera Energy, who believes that the group has a pre-planned agreement in place.

If the OPEC+ parties do not already have an agreement in place, they would have just called off the meeting, he told MarketWatch. The video conference is scheduled to begin Thursday at 1400 GMT, or 10 am Eastern time, according to Reuters
.

“The virtual meeting is merely a formality as the key decision makers, Saudi Arabia and Russia, have already had direct discussions in advance, and Saudi Arabia has already had side talks with its partners, Kuwait and [United Arab Emirates],” Raj said.

He sees a pre-planned “baseline” for OPEC’s discussion to be for cuts of 8 million to 10 million barrels per day over 90 days, with the meeting likely focused on “fine tuning the amount and allocating the amount to each partner.”

Still, decisions by the group of major oil producers, collectively referred to as OPEC+, have been known to be notoriously difficult to reach. A meeting in early March broke down after OPEC member Saudi Arabia and non-member Russia failed to agree on production cuts—leading to a price war and production increases among the two nations.

Saudi Arabia lifted its production to 10.15 million barrels a day in March, just above its quota of 10.144 million barrels, according to a survey conducted by S&P Global Platts released this week
. The kingdom, along with the United Arab Emirates and Kuwait, contributed to OPEC production of 28.97 million barrels a day in March—up 980,000 barrels a day from February to reach a three-month high, the survey showed.

“If the cartel fails to secure a meaningful deal that ends the current price war, oil could end up tumbling back to levels not seen in 17 years around $20,” said Lukman Otunuga, senior research analyst at FXTM.

On the other hand, “a positive outcome to the meeting should offer some light at the end of the tunnel for oil, opening the path towards $40,” he told MarketWatch.

On Wednesday, May West Texas Intermediate crude /zigman2/quotes/209724760/delayedCLK20-8.67%
settled at $25.09 a barrel, up $1.46, or 6.2%. Global benchmark June Brent crude rose 97 cents, or 3%, to $32.84 a barrel.

Both benchmarks have lost more than half their values so far this year.

Even if OPEC+ cuts by the highest number mentioned—15 million barrels per day— “it will not match the drop in consumption, said James Williams, energy economist at WTRG Economics.

IHS Markit forecasted a drop in second quarter global oil demand of 16.4 million barrels a day from a year earlier, and estimated April’s oil demand decline at around 20 million barrels per day, citing “the closure of a large share of the global economy” due to the COVID-19 pandemic, according to a report issued on March 31.

“Most likely we will see OPEC and OPEC+ agree to a 10 million [barrel per day] cut, with an outside chance of 15 million,” said Williams.

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Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the...

Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the bulk of her years at the company writing the daily Futures Movers and Metals Stocks columns and has been writing the weekly Commodities Corner column since 2005. Myra has been with MarketWatch since 1998 and holds a master’s degree in English literature.

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